THE DAILYALTS PLAYBOOK

May 1, 2020

The DailyAlts Playbook: Two Years of COVID? , The Meb Faber Interview, Amazon’s Coronavirus Shift, and Tesla Tussles…

PRIME OVERVIEW

Two years.

That’s how long the Center for Infectious Disease Research and Policy at the University of Minnesota suggests that the pandemic could last.

Two years.

This week, the Center released a report suggesting that the world will not contain this pandemic until roughly two-thirds of people are immune, which means we could see multiple waves of the virus.

Two years is effectively two election cycles.

How much will Congressional priorities change? Will Washington get serious about its “City on a Hill” mentality and engage in wartime like mobilization, or will individual states be left to address this pandemic on their own.

What happens to underfunded pensions, cities on the brink of bankruptcy, people whose job hours ebb and flow with the waves of virus outbreaks? Will anything feel normal during that time?

These are the questions that a lot of people are asking.

These are questions we’re all forced to answer on our own.

Washington infighting heading into the 2020 election will accelerate, and power is a siren in a crisis. I’ve long joked that we have the leadership we deserve. I’m now taking a harder line on my view of Washington and state officials. Calling forward-facing officials “a kleptocracy” in this crisis is being nice.

The other question worth asking is when – not if – the U.S. stock market actually starts to reflect the reality that we will likely face the worst economic conditions in the history of nation.

Right now, we’re happy to cheer the reopening of limited parts of the economy, but people who have bought into this rally on hope have to understand that the purpose of a market IS TO SELL.

Two years. Does this market reflect that sort of altered reality?

MORNING MOMENTUM

CORONA: The coronavirus has now officially affected more than 3.27 million people, with nearly 234,000 deaths, according to Johns Hopkins University. Last night, China announced that the Hubei province – where officials first detected COVID-19 – will start to relax its lockdown rules starting tomorrow. The province’s health commission announced Friday that it will decrease its emergency response level to its second-highest grade tomorrow. Elsewhere around the globe, Iran, Russia, and Singapore reported an increase in cases. Meanwhile, in the U.S., major airlines have announced plans to require passengers to start wearing face masks or facial coverings from check-in to departing the plane.

CRUDE: WTI oil prices are on pace for their first gains in a month, while Brent crude was sliding this morning. The uptick in U.S. prices came after companies started cutting output to offset low prices and the Energy Information Administration reported a lower build of inventories than analysts had expected. Analysts have suggested that we are witnessing a bottoming of the market. However, global crude storage is nearing its capacity and could top out as soon as June 2020. Meanwhile, OPEC and Russia have started to cut their output in order to support the global crude price.

BANKS: The banking sector has taken a big hit since the market started its downturn in mid-February. The SPDR S&P Bank ETF has declined by 32%. However, Bank of America (NYSE: BAC) said on Thursday that banking stocks are poised to rally during the impending economic recovery across the United States. “This is a sector that’s probably going to recover faster than others in an upturn. It’s also priced relatively conservatively,” a BoA strategist told CNBC on Thursday.

ACCRUED INTEREST

SHORTS: Yesterday, we noted that Greenlight Capital took another shot at Tesla Inc. (NASDAQ: TSLA) and Elon Musk. On Twitter, Einhorn questioned the company’s accounts receivable and other elements of its balance sheet. That said, Greenlight had a 1.1% decline in April, according to Bloomberg. Einhorn’s firm is off about 22% to start the year, in part due to a losing short position on Tesla. The downturn came despite the S&P 500 having its largest one-month gain since 1987. That said, Einhorn can rightfully blame the Fed, which hammered a lot of short positions with unprecedented asset purchasing to shore up the economy and markets.

REVERSAL: Big news in the digital world. ICANN has rejected the plan of private equity firm Ethos Capital to convert the .ORG registry to a for-profit entity. As the Electric Frontier Foundation explains, the .ORG registry would have faced heavy debts under the PE-led transformation. The $1.1 billion sale would have likely driven up the cost of .ORG sites, which typically serve non-profits.

BITCOIN: It’s been a little while since we talked about Bitcoin. With the price now hovering around $9,000, most investors are eyeing the approaching halving event, which will see the production rate of the world’s largest cryptocurrency cut in half. Bitcoin has rallied sharply since the March selloff that pushed it down under $3,000. Bitcoin is now the top-performing asset of 2020. That rally has Thomas Thornton, the head of the hedge fund Telemetry, calling a top on Bitcoin’s trend. Here’s more on his outlook.

NORWAY: Finally, a story I’ve been watching so that you don’t have to do it. Here in the United States, when a hedge fund manager buys a $500 million sky castle, it doesn’t generate much negative publicity. And when someone engages in unethical behavior – we are told that’s how business is done. But in Scandinavia, tabloids bring hell and fury for anyone who looks to be dealing from the bottom of the deck. Norway’s press had covered for months the ethical dilemma faced by Yngve Slyngstad, the CEO of the nation’s $1 trillion sovereign wealth fund. The executive had accepted a lavish trip from Oslo to Philadelphia by none other than the man who would ultimately take over his job – hedge fund Nicolai Tangen.

QUOTES OF THE DAY

“If you’re a shareowner in Amazon, you may want to take a seat, because we’re not thinking small. Under normal circumstances, in this coming Q2, we’d expect to make some $4 billion or more in operating profit. But these aren’t normal circumstances.”

That’s Amazon’s press release from its earnings report on Thursday. The company generated $4 billion in profit, and every dollar is going back into its response to address COVID-19. That means more employee testing, more safety equipment, betting social distancing protocols, and a shift in its self-investment.

CARRIED INTEREST

Here are the other headlines getting our attention this morning.

• OOF – WeWork will see an $8.4 billion loss on its WeWork writedown.
• CRYPTO – Andreessen Horowitz announces the second crypto fund.
• HIRING: DE Shaw joins Citadel in its hiring spree.
• EARNINGS: Apollo is a great company, but COVID takes its shots
• FINTECH: Flagstone Raises $15 Million
• SOCIETY: Fintech Faces New Normal with Its Workforce
• VENTURE CAPITAL: The Great Reboot of VC

HEDGE FUNDS IN FOCUS

Finally, we’re pleased to announce our latest interview at DailyAlts.com

This week, we sat down with Meb Faber of Cambria Investments to discuss his investment approach and how it can help investors miss the massive sell-offs that occur in the stock market. We also discuss his tail risk strategy that uses Treasury Bonds and options to hedge equity portfolios in turbulent times.

Meb Faber is the author of seven investment books and the host of The Meb Faber Show Podcast. Cambria Investments offers 11 different Exchange Traded Funds based on Meb’s investment philosophy.

About Meb Faber
Meb grew up in North Carolina and Colorado and attend the University of Virginia.

He worked as a biotech analyst after graduation in Washington D.C. and eventually headed west. While in San Francisco, he worked as a quantitative analyst and spent as much time as possible skiing in the Lake Tahoe area.

He now resides in Great Los Angeles, where he has traded his skis for a surfboard. He is one of the leading quantitative analysts and investors in the United States. His core approach is a unique blend of value, momentum, and trend following.

Meb Faber has been featured in Barron’s, The New York Times, and The New Yorker.

You can listen to the interview, right here.

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ABOUT THE DAILYALTS PLAYBOOK

Garrett Baldwin is the author of the DailyAlts Playbook.

An economist and author based in Naples, Florida, Garrett has an extended history of financial analysis, business journalism, public relations and consulting experience in hedge funds, private equity, alternative investments, housing policy, commodities, and public equity coverage. He holds degrees from Northwestern University, Johns Hopkins University, Purdue University, and Indiana’s Kelley School of Business. He also has a Certificate in Global Business from Harvard Business School.

An avid Baltimore Orioles and Buffalo Bills fan, he would prefer to discuss other sports, please.